Monday, March 27, 2017

Sometimes the numbers look good at first glance. Then you glance again, in more detail—and the details don’t look as good.

That’s one lesson to be learned from fourth quarter 2016. Calcbench decided to do some big-time number crunching, comparing the results of nearly 3,200 companies that had filed fourth-quarter results as of March 20 to their one-year ago results for fourth-quarter 2015.

Taken altogether, the data has a lot to like. Revenue, assets, cash, and dividend payments all rose year over year; as did liabilities, cost of revenue, SGA costs, and inventory. Capital expenditures and operating expenses declined. The big jump, however, came in net income: up a whopping 67.5 percent, an increase of $57.66 billion dollars. Just look at the spike in this chart below.

Then we started to dig more deeply, because you can do that with Calcbench databases. We exported all the results to look at them individually, and measured the “net income delta”—that is, the change in absolute dollars between net income from fourth-quarter 2015 to fourth-quarter 2016.

That’s when we found that almost all of the increase in net income for our dataset of 3,183 filers comes from only 10 firms that experienced huge change year-over-year gains in net income. And of those 10, eight of them had gains this year only because they reported large one-time losses last year.

Yahoo and Freeport McMoran, for example, both reported huge write-downs of goodwill at the end of 2015 ($4.1 billion for Yahoo, $8.5 billion for Freeport). Procter & Gamble had to make a one-time adjustment for inflation in Venezuela worth $2 billion in 2015, and not in 2016. Only Altria and eBay reported one-time increases in profit where profit actually, ya know, increased.

We will publish a more detailed review of fourth quarter numbers in April, after Walmart files its results. (When you’re the largest company in the world, your numbers are worth waiting for.)

Still, this short example shows how much details matter for astute financial analysis. Thankfully for Calcbench subscribers, we have details and granularity in spades.

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